Creating markets

Simon Jenkins' and James Kirkup's proposals to privatize lions to protect them has been derided by some as "peak Telegraph" and knowing the price of everything and the value of nothing. This, I fear, highlights the poverty of debate about the use of markets generally.

Simon's and James' thinking derives from the conventional economics of the tragedy of the commons. This says that if wildlife is unowned, nobody has a material incentive to conserve it and there will therefore be a tendency to over-hunt it. If, however, lions could be owned and hunting permits sold, the owner would have an incentive to protect lions from poachers. Privatization is, therefore a possible solution to the tragedy of the commons - though as Elinor Ostrom (pdf) showed, only one possibility.

There are, however, problems here. Not least is: can such private property rights be created and enforced?

One danger here is a re-emergence of the natural resource curse: if governments grant a valuable property right, people will fight over it, possibly impoverishing the country.

Another issue is whether such rights can be enforced. As Terry Anderson has shown (pdf), the emergence of property rights requires among other things that technology permits a lowish-cost enforcement of those rights. But in the case of migratory (pdf) species, this might be absent. There's also a principal-agent problem. Landowners might not be able to prevent poachers bribing rangers to let them kill the animals or to tempt them off the protected land: it's alleged that this happened to Cecil.

My point here is a simple one. Whether effective markets and private ownership can be created depends upon particular institutional and technical conditions.

This is, of course, a variant on Coase's famous point (pdf) - that there are costs to market transacting. These costs must be weighed against the costs of other forms of economic organisation - be it the firm or state control.

This applies to issues much nearer home. Whether public sector services should be privatized depends upon precise institutional detail: is it possible to write contracts which ensure a high quality of service without excessive rent-seeking? In Coasean terms, is the cost of market transacting lower than the cost of in-house production?

The answer will vary from service to service and place to place.

And herein lies my beef. In the case of lions and the NHS, this point is overlooked in favour of ideological soundbites: "Markets - yay!" "Neoliberalism - boo!" In fact, the issue is more technocratic than that. It all depends upon subtle details.

Comments

[theOnlySanePersonOnPlanetEarth]

I have my own idea, let us bring in capital punishment for blood sports.

This derives from the conventional idea that voluntary acts can be socially controlled, whereas involuntary acts cannot.

This says that the blood sports enthusiasts will think twice before pulling the trigger but the high school massacre wannabee will not.

[Dave Timoney]

tOSPOPE's suggestion is actually quite sensible, if you forget about the idea of capital punishment for a moment, in that it ressurects the idea of taboo. This cultural institution was traditionally used to limit the depletion of key resources as much as to enforce hygiene - e.g. you could only kill certain animals at certain times and in certain ways.

The ostracism of the Midwest dentist is a traditional social response: he is being shamed as an example to dissuade others from doing likewise. In years gone by, it is unlikely that this story would have made any great waves, which points to the key role of social media. This is simultaneously a new institutional form and a market for outrage.

Kirkup and Jenkins are merely trying to leverage that same market with their provocations. Typically, both are mealy-mouthed, insisting that they personally deplore hunting for sport, while advocating solutions to meet their ideological priors: Lion Corp for Kirkup and sustainable ranching for Jenkins. Will no one stand up for an autonomist Shona workers' collective? Where's Jeremy Corbyn when you need him?

[Fvr]

Much historical work on commons has shown that they did not necessarily lead to tragedy. Technology or institutions are part of the solution, sure, but more important are underlying power relationships: institutions only work to support commons where, for instance, no one group can dominate them and use them to exclude others.

Other than that, it's a fallacy to think that there are only costs and benefits which can simply be measured and compared, and an ideal solution to be subsequently selected by well-trained technocrats. There are values underlying every calculation: what counts as cost, what counts as benefit, what time frame are you looking at when calculating their difference, what value do you place on variables that cannot be easily given a monetary value? These decisions are political first and foremost, and therefore ideological.

[Matt Moore]

"It all depends upon subtle details." Chris, you are always (correctly) telling us that such details are unknowable.

Given the track record of market provision vs state provision, in my mind it takes the continued existence of an obvious and large market failure to justify government provision. Even then, we should retry market provision every so often - otherwise technology moves on, but the monopoly is maintained.

[Steven Clarke]

This post highlights the tragedy of politics - the Tragedy of the House of Commons, if you like. In that NONE of the ideas suggested here, or alternatives put forward in the comments, will ever have a chance of being tried, because they don't have a big enough constituency.

Personally, I quite like the idea of the State setting up markets. Mancur Olson had a nice term for this, the market-augmenting state. Some examples I'd like to see:

* auction off land to developers subject to democratically determined zoning laws.

*macro-markets. The current politics around benefits and the deficit show the political limits to social insurance. Help create private insurance to insure against the vicissitudes of the economic cycle and technological change.

*markets in pollution.

There are probably others. These might be bad ideas - but I'd like to see small-scale experiments where possible, which can be examined to look at the effect of subtle details.

@Matt Moore. I share your skepticism, but it's not historically the case that the State has always encroached on the market's territory i.e. it's not like there was a fully functioning market in shooting lions before regulations were put in place. Often, there was something that was neither State nor market, and these two have emerged from it.

[greg]

All rights require a (lowish-cost) mechanism to enforce them. That is why libertarianism is such crap, because there is no mechanism to enforce their 'principle' of "self-ownership." Even in today's societies, it is not always possible to prevent some well placed individuals from compelling labor from others.

[BCFG]

"Given the track record of market provision vs state provision, in my mind it takes the continued existence of an obvious and large market failure to justify government provision."

History is pretty clear on this, every advanced capitalist society involves huge amounts of intervention by the state. And the evidence is also clear that high state involvement in the capitalist economy is no barrier to economic growth.

Letting the market do its thing leads to chaos, ruin and social conflict. Though it should be borne in mind that when the state does get involved it more often than not intervenes on behalf of the ruling class.

This debate around the market vs state provision is fast being overtaken by concepts of post capitalism.

It will soon become clear which libertarians are nothing but tools of the ruling class and which are genuine advocates of progress. I suspect the vast majority will fall into the former camp.

[Laban]

If the lion had been killed by a local, it might have been a paragraph in a Guardian piece two months later, stressing the endemic poverty of Zimbabwe and blaming the legacy of colonialism.